Fed Decides to Raise Interest Rates, Ending Its Era of Zero Rates

Fed Decides to Raise Interest Rates, Ending Its Era of Zero Rates

BOK Predicts “It Will Not Be a Big Impact on International Society”

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DSCF0338The Open Market Committee of the Federal Reserve System (hereinafter referred to as the “Fed”), the central bank of the United States, declared at its regular meeting held on December 16 (December 17, 2015, 4 a.m., KST) that it would raise its Federal Funds Rate (hereinafter the “Policy Interest Rate”) by 25 basis points from the 0-0.25 percent range to a target of 0.25-0.5 percent. The decision came exactly seven years after the Fed lowered its benchmark federal funds rate to near zero in December, 2008.

It’s the Fed’s first rate hike in 9.5 years since June, 2006. The Federal Open Market
Fed Chairwoman Janet Yellen said the decision to raise interest rates would be “a testament” to the U.S. economy’s progress toward recovery, and she also indicated that rate increases would be gradual over the next few years. When asked about the impact of the Fed’s decision on emerging markets, Ms. Yellen said that the Fed is striving to clearly communicate its intentions on interest rates, adding that it continues efforts to prevent negative effects.

The Bank of Korea (BOK) said, “A rate hike by the U.S. Federal Reserve has long been anticipated and a large part of such anticipation has already been reflected in international financial markets. Fed Chairwoman Yellen has also emphasized that interest-rate increases will come slowly in the months ahead. So, we believe the rate hike will not affect the global financial markets considerably.” It also added, “Despite the Fed’s rate rise, the U.S. stock markets are soaring and interest rates remain stable. In this regard, we expect the rate hike will have a limited impact on the domestic financial market. “

Additionally, the BOK said with emphasis, “We will also closely monitor both domestic and international financial market conditions, as the hike will increase uncertainties in newly emerging market countries. If market volatility is deemed excessive, we will aggressively map out measures to stabilize the financial markets in consultation with the government and financial supervisory authorities.”

Repoter Eun Hee Cho[ceh@newshankuk.com]